Explanation

To estimate a company's purchases, we use the basic inventory equation:

Beginning Inventory + Purchases - Cost of Goods Sold = Ending Inventory

Rearranging this equation to solve for Purchases:

Purchases = Cost of Goods Sold + Ending Inventory - Beginning Inventory

Therefore, purchases can be estimated as:

• Cost of sales (Cost of Goods Sold) plus
• Ending inventory less beginning inventory

This matches option A.

Why the other options are incorrect:

Option B (beginning inventory less ending inventory): This would give you a negative number if ending inventory is greater than beginning inventory, which doesn't make sense for purchases.

Option C (the average level of inventory for the period): While average inventory is useful for calculating inventory turnover ratios, it doesn't directly relate to the calculation of purchases in the inventory equation.

Key Concept:

This question tests understanding of the inventory equation and how to derive purchases from the basic accounting relationship between beginning inventory, purchases, cost of goods sold, and ending inventory.